CBDT tries to allay tax terror fears as businesses go digital

“By adopting the digital mode of payment, no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts.”TNN | December 13, 2016, 13:14 IST

Mumbai: An increase in turnover of a business owing to its accepting digital means of payment will not trigger reopening of cases of past years, according to a clarification issued by the Central Board of Direct Taxes (CBDT).

The Income Tax (I-T) regulatory authority has sought to allay fears of tax terror, especially among the smaller and medium-sized business entities, many of which — in the back drop of demonetisation — would be accepting digital payments for the first time. These include retail stores, restaurants and other service agencies, ranging from coaching classes to beauty parlours.

In its circular, CBDT explains, “By adopting the digital mode of payment, no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts.” An apprehension was raised by the business community that increased turnover in the current year may lead to reopening of earlier years’ cases where the turnover was lower. Reopening would cause undue harassment to taxpayers.

CBDT’s circular categorically says, “Mere increase in turnover, because of use of digital means of payment or otherwise, in a particular year cannot be a ‘sole’ reason to believe that income has escaped assessment in earlier years. Hence, I-T officers are advised not to reopen past assessments in cases, merely on the ground that the current year’s turnover has increased.” Mere suspicion is not an adequate ground for reopening of earlier years cases, it states.

Ameet Patel, tax partner, Manohar Chowdhry & Associates, says, “The entire initiative of demonetisation has been laid down by the government to unearth black money and also prevent further creation of black money. Another objective also seems to be to get as many people as possible into the formal economy.”

“Thus, if because of digitisation sales for the current year are higher than in earlier years, I would feel that this would be treated as a success of the demonetisation move by the government. I would not expect I-T authorities to open past assessments of a businessman because of such an increase in sales,” he adds.

Section 147 of the I-T Act permits reopening of past cases, generally up to the past four years, where the I-T officer has ‘reason to believe’ that income has escaped assessment. CBDT’s circular seeks to distinguish between suspicion merely owing to an increase in volume of turnover and strong grounds of believing that income of earlier years escaped tax.

However, the circular doesn’t provide any buffer to unscrupulous business entities. It is expected that big data analytic tools will be deployed to catch significant cases of mismatch between source of income and bank deposits, consequent to demonetisation. These tools will also be useful to detect cases of heavy cash sales soon after demonetisation, said an I-T official.

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